In this list
Agriculture | Energy Transition | Oil

FEATURE: Biodiesel fundamentals support higher blends, Brazil considers change

Agriculture | Biofuels

Biorefinery Cost & Margin Analytics (BCMA)

Commodities | Crude Oil | Energy Transition | Refined Products

Bonus episode: At CERAWeek, oil producers seek incentives for energy transition

Oil | Energy Transition | Energy

APPEC 2024

Energy Transition | Natural Gas | Upstream | LNG | Carbon | Emissions | Hydrogen

Tokyo Gas to start Japan's first pipeline hydrogen supply March 29

Agriculture | Energy | Oil | Refined Products | Gasoline

The price of Ethanol Fuel

Agriculture | Oilseeds | Vegetable Oils | Grains | Food

Insight Conversation: Vladyslav Vlasiuk

For full access to real-time updates, breaking news, analysis, pricing and data visualization subscribe today.

Subscribe Now

FEATURE: Biodiesel fundamentals support higher blends, Brazil considers change

Highlights

Biodiesel mandate for 2023 remains unclear

Diesel-biodiesel spread falls in August

Glycerin price falls 54% over five months

  • Author
  • Nicolle Monteiro de Castro
  • Editor
  • Marieke Alsguth
  • Commodity
  • Agriculture Energy Transition Oil

Shifting price structures in diesel and soybean oil markets could support an increased biodiesel blending in Brazil, market participants said, while discussions of a potential change in the country's biodiesel mandate gained traction after a proposal was pushed, but ultimately excluded, during a provisionary measure in the country's congress.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Congressman Danilo Forte made the proposal on Aug. 31 to increase biodiesel blending to 13% from the current 10% starting in 2023 and progressively raise the blending percentage to 20% in 2028. However, the paragraph that included the proposal was excluded due to a lack of agreements between the government bench in the Chamber of Deputies.

According to the Brazilian biodiesel policy, the national blending mandate was expected to rise to 14% in March 2022 and reach 15% in March 2023. However, amid high inflation rates in the country, combined with a surge in international soybean oil prices, the federal government announced late 2021 that the blending mandate would be revised down to 10%.

Brazilin biodiesel is widely exposed to soybean oil price movements, as the commodity is the major feedstock used by biodiesel producers. In 2021, soybean oil share in the total feedstock was 70%, and from January to June 2022 the share fell to 66%, reflecting a commitment from the industry to diversify its feedstocks.

"The industry is making a strong effort to increase feedstock mix, either from different sources of vegetable oil, tallow, used cooking oil or a mix of it all," a Brazilian biodiesel producer said. "It is an industry challenge."

Platts assessed the soybean oil FOB Paranaguá flat price up to $1,249/mt (Real 6,747/mt) in 2021 from an average of $775/mt (Real 4,164/mt) in 2020, marking a spike of 61%. Meanwhile, the average from January through the end of August 2022 was $1,548/mt (Real 7,884/mt), according to data from S&P Global Commodity Insights.

Diesel market

While the exposure to a single feedstock price explained part of the government's decision to drop the biodiesel blend, the other relevant component was the price movement of diesel, which, despite following the same upward price pattern, was still cheaper than the renewable option.

Platts' import parity of ULSD 10 delivered in Santos moved to an average of Real 2,887/cu m in 2021 from Real 1,811/cu m in 2020, jumping 59% year on year, while the average in the first eight months of 2022 was Real 4,948/cu m.

The price spread between Platts' biodiesel DAP Paulínia spot assessment and Platts' import parity of ULSD 10 delivered in Santos fell to an average of Real 1,013/cu m in August from Real 3,502/cu m in December 2021. The biodiesel sector has considered the narrowed spread between ULSD and its renewable counterpart as a strong argument, as the sector now can correlate the mandate increase request with the environmental agenda and the potential GDP growth usually attributed to the energy transition narrative.

Additionally, Brazil needs to import nearly 25% of its total diesel demand, and in 2022 fuel importers started to highlight that diesel supply could be at a risk if Petrobras did not follow the import parity price.

According to the Brazilian average ex-refinery diesel s10 price used as a reference by Petrobras and the Platts IPP delivered in Santos, the import arbitrage remained widely closed from June 1-July 1 2022, capping any economic incentive to import diesel.

Producers have used the supply risk, combined with the increased GHG emissions attributed to a reduced biofuel blend and the economic impact in the whole Brazilian soybean chain, as the main argument to justify increasing the biodiesel blend rate.

"Brazil has enough crushing capacity to retain soybeans in the domestic market and produce soybean oil needed to commit with a biodiesel blending of up to B18 or B20," a biodiesel producer and crusher said. "The government can encourage domestic crushing versus exporting soybeans, to the detriment of encouraging biodiesel."

Glycerin market

Producers consider glycerin, a byproduct from biodiesel production, in biodiesel profit margin calculations, and therefore any price movement in that product could potentially be converted in the biodiesel end cost.

In the biodiesel transesterification production route, 10% of production is converted into glycerin, according to market participants.

Peter Cremer North America, one of the main global participants of the glycerin trading, said glycerin CIF China Main Ports traded at $1,070/mt in early March and fell to an $445/mt average in August. The trading house attributed part of the price drop to a reduced global demand of hygiene products, which peaked during the coronavirus pandemic.

Brazilian biodiesel producers have been using a formula to price most of the term contracts settled with distributors, with soybean oil FOB Paranaguá as the main component. A named fee, which historically has been a discounted value applied after the conversation of the production cost based on soybean oil converted to Real/cu m, is the not transparent cost.

For the contracts settled to supply September and October demand, producers said the lower glycerin cost could explain the less-discounted fee compared to the prior two months' cycles.